Forex trading psychology refers to a trader’s emotions and their mental state. It is one of the most important deciding factors of whether a trader will make it or not . It is also about a trader’s character which plays a big role in influencing their trading decisions. Most failures in Forex trading are more about how traders manage themselves.
Manage Yourself, Manage Your Money
I always say that if you can manage yourself, you can definitely manage your money. Most traders think that the most important thing for successful trading, is finding amazing tools and trading strategies. I also understand that we cannot control what happens in the markets, but we can always control ourselves. Now that we know what Forex trading psychology refers to, let’s look at the few specific behaviours and emotions that can be associated with it.
In whatever that we do, we mostly need a certain level of discipline, without it, chances of being successful are limited. I will make an example with trying to keep fit and getting healthier, we need a lot of self discipline/control in terms of what we eat and also making sure that we get moving and exercise. If we lack self control, we will feel tempted to eat junk food and justify it by saying that everyone around us was eating junk. I love using these as examples because I know how difficult it is for most people to discipline themselves in terms of what they should eat and not eat. Healthy eating is one of the important things that I am passionate about because health is wealth. Let me go back to the business of today before I go on and on about food and health.
How Important Is Self Discipline?
When it comes to Forex trading, discipline should be your strongest weapon. If you cannot discipline yourself in the markets, the markets will sure discipline you through a margin calland that is not a nice thing to experience as a trader. Disciplining yourself involves you saying NO to that urge to trade all the time/over trading, using a bigger lot size when your account is small and risking more that what your account could handle.
What Happens When You Lack Discipline?
When you lack discipline, Forex trading feels like a very bad addiction. When you lack discipline, you are unable to stick to your own plan. The good thing is that discipline is something that can be learned, as long as there’s a will to learn and enough support from a Forex trading mentor/coach. I have learned that it is easier to win when you have a support system to help you up when you stumble (that’s basically what I do with my mentees). A mentor/coach clears a way ahead for you. I never do anything without a mentor/coach until I can stand on my own. Normalise doing the same, it really helps.
When fear strikes, you are likely to miss out on great trading opportunities for the fear of making mistakes and losing money (especially if you’ve made some mistakes that lead to you losing money). The fear of missing out is also another form of fear that is associated with Forex trading psychology. When this type of fear strikes, a trader feels like if a day goes by without placing any trades, they are definitely missing out. But the truth is, a missed trade is never a loss. There’s another type of fear that I won’t indulge in that much on this post, and that is the fear of success. You can read all about it in the post that I published a year ago, HERE.
According to its definition, greed is a selfish want for something beyond one’s need. A greedy trader is a trader who is never satisfied no matter how great their trading session can be, it always ends very bad. No matter how much they make in a day, it always ends in great losses at the end of the day. A greedy trader never takes money home, it only goes as far as trading history. The good thing again is that, this is something that can be unlearned, as long as you’ve identified and acknowledged it, you can learn NOT to be greedy. Unlearning forms a big part of learning, read more about that HERE. A while ago, I published a post about overcoming GREED, you may want to check it out.
Forex trading psychology is also that one area that I focus the most on. I recently started posting weekly tips on the App that are mainly focusing on Forex trading psychology. The main aim is to help you shape your mindset and gear it up for better trading experiences. The weekly tips are only posted on the app. You can download the app on Google Playstore and make sure that your device allows push notifications to be notified whenever a new weekly tip on Forex trading psychology to improve your trading is posted. Thank you so much for stopping by.
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Previously on the news: Due to a bank holiday on Friday, U.S Non Farm Payroll was released on a Thursday. Job numbers rose to 4800K Vs 3037K. These numbers were not necessarily about new jobs, but more about existing employees returning back as lock down is slowly easing. Earnings dropped to -1.2% Vs expected -0.8%. Unemployment rate dropped to 11.1% Vs 12.4%.
On the 7th, Reserve Bank of Australia(RBA) will be deciding on their Interest Rates. They are expected to maintain the current rate of 0.25%. As usual, they will also issue their Monetary Policy Statement, which focuses more on the future. We will be watching the tone of the statement to see if it is hawkish or dovish.
Should you wish to subscribe to this blog for weekly economic news and practical Forex tips, you can subscribe by entering your email address on the subscribe tab on the sidebar, go to your email for a confirmation link (it could be in the spam/ junk folder) click on it to confirm your subscription. The App is also available on Google Play Store . Weekly tips on trading psychology are posted only on the app, DOWNLOAD it today. (App Store is coming soon). In case you missed my previous post on how to avoid Margin call, check it out Here. Thank you for stopping by. Below is the weekly economic calendar and happy trading.
Margin call: When your trading account does not have enough funds to sustain open losing trades. The broker will then close all your positions automatically one by one until the account shuts down completely. You could have an account with a $5 000 balance but still end up with an account with zero balance in an instant. It happened to me, you can read all about it Here.
Forex trading can deceptively appear as the easiest thing ever whereby one only needs a cellphone and technical indicators to confirm some lines and that’s it. Because of that notion, most people are venturing into Forex with high expectations to profit from it but not enough information of what is really needed from them. One has to be a realist and know their abilities and limitations when it comes to Forex. Fortunately though, it is a skill that anyone can learn, as long as there’s willingness.
One of the most painful things a trader can experience is margin call. Majority of Forex traders have had this unpleasant experience, yours truly included. That experience does not only leave you shocked but extremely ashamed and embarrassed. Below are the 3 ways to avoid margin call.
1. Mind Your Margins
Having a live trading account with no clue of what a margin is, was my biggest downfall. Knowing all the other details on my platform, like the balance (which is really not that important now that I am well-informed) neglecting what I now think is the most important part, your margin, free margin & margin level. You don’t want to deplete your free margin because that’s what gets your account to margin call. Know what gets allocated to each trade. That is golden information that you need to understand the most.
2. Avoid Bigger Lot Size
There is absolutely nothing wrong with trading a bigger lot size as long as your account can handle it. In fact, in Forex trading, size does matter. A bigger lot size allows you to make bigger profits (and bigger everything else such as losses, which is something that can be controlled with the right coaching and mindset)
Knowing whether your account can handle it or not, lies in the margin for each lot size that you trade. This is the part that I emphasise the most in my private coaching, as I believe it forms a bigger part of money management. I also try by all means to simplify this in a way that makes it easier for my mentees to understand it like a business cost without bombarding them with lot size calculators and a whole lot of complicated systems. I am a simple girl who believes in simplicity.
3. Avoid multiple trades
Because most people do not have a clue of what really causes margin call ( I think I have tried to explain that and I hope you now have a slight idea) they usually just open as many trades as possible hoping to maximise the chances of making more profits. Opening more trades simply means that you’ll use more margin and increase the chances of depleting your free margin which will eventually lead to margin call, should those trades go to bigger losses.
No matter how good your trading strategy is, if your money is not well managed, you are playing a losing game. The last point that I want to get across is that the internet is your main tool in Forex trading. You cannot really do much without good connection. The markets do not care if your internet is slow. If you have live trades, be sure you have good internet connection especially if you are a day trader. Thank you for stopping by. I hope you find this post valuable. If you do, kindly share with your peers so it can reach as many people as possible who are looking for practical Forex tips.
Bank Of Japan (BOJ) will issue their monetary policy statement on Wednesday. U.S Retail Sales stats are expected to rise to 7.4% versus -16.4% expected. Fed Chair Jerome Powell is also due to testify on the Semiannual Monetary Policy Report before the Senate Banking Committee, in Washington DC. On Thursday, Swiss National Bank and Bank Of England (BOE) will decide on their Interest Rates and issue their Monetary Policy statements. Below is the weekly economic calendar.
I believe as people we are different, we have different ways of doing things. Our personalities play a big role in the type of businesses or careers that we end up choosing . I am fully aware that as traders, we are all different in our personalities and needs, therefore we ought to have or prefer different styles of trading.
Questions become answers
The simplest way to find out the type of a trader that you are, is to ask yourself some questions such as, are you impulsive or nervous, or are you a calm person in general, do you get anxious when things don’t go your way? These kind of questions can actually give you an idea of what style you should be adopting when it comes to Forex trading. I have found my own and I have been sticking to it for years. I had to unlearn some personality traits to make it work. That can also be done.
Below I will list a few Forex personalities that I think you can be able to identify your own style and be able to choose the trading style that can best suit you, your personality and your lifestyle. Understanding your own needs is key to identifying your preferred method. Some of the personality traits can be unlearned as long as you are allowing yourself to unlearn them. A good mentor/coach is able to assist with such behavioural issues, because some of them can be changed by adopting new habits.
Simplicity and effectiveness is what this type of trader looks for. Complicated systems confuse this type. They are just cool with a simple yet effective system, steadiness is also important to this type, BUT unfortunately the markets aren’t as straight forward. Some reading will surely be required. This is the fact that we cannot dismiss. Looking at the current markets conditions, one cannot just rely on a “pluck & go” system.
This type of person is nervous by nature, this trader becomes so nervous to handle multiple open positions, has a low risk tolerance and does not feel comfortable taking long term trades. If this type happens to enter a long term trade, they will have sleepless nights thinking of what might happen in the markets.. So in short, this trader is best suited for small volumes, and should be staying away from systems that rely heavily on leverage, because all this can cause negative emotions. short term trades is best suited for this type.
This type prefers to have a very little contact with the system and isn’t really a fan of computers. They prefer a system that is able to run on its own. I think this type can do well on autopilot trading or just copying other traders because they will not have to worry about which trades to take and when and why. If you are this type, I suggest that you start some learning. I was once this type and that also led me to copying other traders and later sourced out signals. I can’t say much about how it all ended, you can find out from this post HERE. I did pen it down. This type is also likely to just want to trust other people to trade for them, which is never a great idea in most cases. I believe that there is no one who can take care of your money better than you can.
This type of trader is up for variety, not only looking at trading currencies but CFD’s as well , like Gold spot, Dow Jones, FTSE 100, Dax, Nasdaq, BrntCrude Oil and many more. This type is the one that is “heads up” with what is happening as far as economic events, geopolitical, Central Banks and their Interest Rates and monetary statements are concerned. They are in the know when it comes to the fundamental reasons why the markets move. Any system that does not including reading and understanding the reasons why the markets move, will probably frustrate this type and it won’t make sense. I am definitely this type and I love being this type. It has saved me from from a lot.
This is the type of trader who prefers high frequency trading (HFT), and the risk appetite for this type is quite high. This type looks for higher gains due to an increased risk. Slow trading systems are too ”tame” for this type. They want to be there, hands on and prefer to do things on their own. This type is the one that sometimes fails to see the thin line between trading and gambling, they can easily gamble because trading high volumes is not an issue for these ones. Their eyes are only set on profits, driven by greed and the need to make it big, forgetting that what they can make reflects what can be lost as well.
Now that you can at least identify yourself and you can see which category best describes you, you can choose wisely and act rationally when taking trades instead of acting emotional. In closing, respect the market and it will return the favour. You may love to read this post about Forex trader Vs Forex gambler. That should also help you to identify your personality traits. Thank you for stopping. To help spread the tips, kindly share this post. If you would like to be notified whenever I publish a new post, you can subscribe to this blog. Look for the subscribe button on the sidebar, enter your email address. An email will be sent to your email address (it may be in the spam/junk folder) click on the link to confirm subscription. You can also download the App on Google Playstore for a quick read and weekly tips which are only posted on the App.